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Governance

Review

Petra Diamonds Limited is incorporated in Bermuda. There is no formal corporate governance code in Bermuda but as the Company is listed on the premium segment of the Official List, it is required to comply with the principles of the UK Corporate Governance Code (“the Code”) or otherwise explain why it has not complied in its annual report and accounts. Although the Company does not at the present time comply with all of the Code requirements, the Directors are committed to making the appropriate changes to meet the Code’s requirements wherever possible and appropriate for Petra.

Petra is committed to maintaining the highest standards of business conduct and ethics, as well as compliance with all applicable laws, rules and regulations, corporate reporting and disclosure, and all other matters deemed to protect the best interests of the Company’s shareholders.

Download the Group's 2011 Corporate Governance Statement for further information on Petra’s commitment to this area.

Role of the Board

The Board’s primary role is the protection and enhancement of shareholder value. To fulfill this role, the Board (and Sub-Committees where appropriate) is responsible for the overall corporate governance of the Group, including formulating the Group’s strategic direction, appointing Directors and Senior Management, setting remuneration, establishing goals for management and monitoring the achievement of these goals, approving and monitoring capital expenditure, and ensuring the integrity of internal control and management information systems. The Board is also ultimately responsible for approving and monitoring financial and other reporting.

The Chairman is responsible for the leadership of the Board and ensuring its effectiveness. At each Board meeting, the Chairman ensures significant time is devoted to key strategic issues. When setting Group strategy, the Board agrees a shared vision of what the Company is aiming to achieve and over what time period, as well as an understanding of what is required in order to achieve the objectives. This strategy is communicated to Petra’s Senior Management and to the various employee groups in each division of the Company. Externally, strategy is communicated to shareholders via direct meetings or public materials (such as Stock Exchange announcements and the Company website). The Executive Directors of Petra are ultimately responsible for executing the strategy as laid out by the Board.

One of the roles of the independent NEDs is to scrutinise the performance of the Executive Directors in terms of meeting agreed upon goals and objectives, and monitoring the reporting of performance. In addition, they play a key role with regards to ensuring that the financial information, controls and systems of risk management within the Company are robust and defensible, as well as determining the appropriate levels of remuneration of Executive Directors – they are integral to the appointment or removal of Executive Directors to or from the Board, when necessary.

As covered above, Petra intends to appoint one or more additional independent NEDs in the coming months. Although at this time Petra has not formally appointed a Senior Independent NED, this decision will be made when the new candidate(s) is/are appointed. Petra fully appreciates the need to appoint a Senior Independent NED, who will provide a sounding board for the Chairman and serve as an intermediary for the other Directors as necessary. The Senior Independent NED will be available to shareholders if they have concerns which contact through the normal channels of Chairman, CEO or other Executive Directors has failed to resolve or for which such contact is inappropriate.

Board committees

Nomination Committee

The Nomination Committee assists the Board in discharging its responsibilities relating to the composition and make-up of the Board and appointment of Senior Managers.

Petra’s Nomination Committee is chaired by Adonis Pouroulis and its members are Gordon Hamilton and Dr Patrick Bartlett. The majority of the members of this Committee are considered independent in accordance with the recommendations of the UK Corporate Governance Code.

The Nomination Committee meets formally at least twice a year and otherwise as required. View the Nomination Committee Charter.

Remuneration Committee

The Remuneration Committee assists the Board in determining its responsibilities in relation to remuneration, including making recommendations to the Board on the Company’s policy on executive remuneration, determining the individual remuneration and benefits package of each of the Executive Directors and recommending and monitoring the remuneration of Senior Management below Board level.

The Remuneration Committee is chaired by Gordon Hamilton and its member is Dr Patrick Bartlett (pending the appointment of a further independent NED to the Board).

The Remuneration Committee meets formally at least twice a year and otherwise as required. View the Remuneration Committee Charter.

Audit Committee

The Audit Committee assists the Board in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, and risk management systems.

The Chairman of the Audit Committee is Gordon Hamilton and its member is Dr Patrick Bartlett (pending the appointment of a further independent NED to the Board). Gordon Hamilton is considered to have the requisite financial experience given that he spent more than 30 years as a partner at Deloitte & Touche LLP primarily responsible for multinational and FTSE 100 listed company audits.

The Audit Committee meets formally at least twice a year and otherwise as required. View the Audit Committee Charter.

Internal Controls & Risk Management

The Board conducts on-going reviews of the effectiveness of the Company’s risk management and internal control systems, including financial, operational and compliance controls.

Risk Management

The Group is exposed to a number of risks and uncertainties which could have a material impact on its long-term development and performance and management of these risks is an integral part of the management of the Group.

The Board has identified the following as being the principal strategic and operational risks (in no order of priority).

Risk: Mining and Production

Description: The mining of diamonds from underground kimberlite deposits involves an intrinsic degree of risk from various factors, including geological, geotechnical and seismic factors, industrial and mechanical accidents, unscheduled plant shutdowns, technical failures, ground or water conditions and inclement or hazardous weather conditions.

Mitigation/Comments: All of Petra´s existing kimberlite operations have long histories of production and therefore the geology and economics of each mine are well understood. This knowledge of the deposits allows management to eliminate much of the risk associated with developing a diamond mine.

Risk: Diamond Prices

Description: The Company’s financial performance is closely linked to diamond prices which is influenced by numerous factors beyond the Company’s control, including international economic conditions, diamond production levels and consumer trends.

Mitigation/Comments: The management of the Group closely monitors developments in the international diamond market (across the pipeline from the rough market to the retail consumer market) to be in a position to react in a timely manner to changes in rough diamond prices and demand.

Risk: Expansion and Project Delivery

Description: Petra has set out a clear and transparent growth profile to increase annual production to over 5 million carats by FY 2019. Actual production may vary from estimates of future production for a variety of reasons and it should be noted that long-term assumptions may be subject to change as the Company continually evaluates its projects to optimise efficiency and production profitability.

Mitigation/Comments: Petra has an enviable track record in the management of underground diamond operations and is respected as one of the “best in class” teams in the diamond mining industry. With regards to potential budget or time overruns which could impact the completion of these expansion projects, the Group has established procedures to control, monitor and manage the roll-out of its development plans.

Risk: Financing

Description: Petra has a significant Capex programme over the years to FY 2019, with Capex forecast to peak in FYs 2012 to 2015. The Company plans to mainly finance this Capex from operating cashflows. Lack of adequate available cashflows could delay development work.

Mitigation/Comments: Whilst management prepares detailed plans, the actual Capex may differ from estimates. In order to mitigate this, Capex requires a tiered level of approval and variances to Capex plans are monitored on a timely basis. The Company continually and regularly reviews its cashflow planning to ensure that Capex plans are adequately financed.

Risk: Country and Political

Description: Petra’s operations are predominantly based in South Africa, with lesser exposure to Tanzania and Botswana. Emerging market economies are generally subject to greater risks, including legal, regulatory, economic and political risks, and are potentially subject to rapid change.

Mitigation/Comments: Petra routinely monitors political and regulatory developments in its countries of operation. In addition the Company actively engages in dialogue with relevant Government representatives in order to keep abreast of all key legal and regulatory developments applicable to its operations. Petra has a number of internal processes and checks in place to ensure that it is wholly compliant with all relevant regulations in order to maintain its mining or exploration licences within each country of operation.

Risk: Currency

Description: With Petra’s operations mainly in South Africa, but diamond sales based in US dollars, the volatility and movement in the rand is a significant factor to the Group. Also, the Group undertakes transactions in a number of different currencies. Fluctuations in these currencies may have a significant impact on the Group’s performance.

Mitigation/Comments: The Group continually monitors the movement of the rand against the US dollar and takes expert advice from its bankers in this regard. It is the Group’s policy to hedge a portion of future diamond sales when weakness in the rand deems it appropriate. Such contracts are generally short term in nature. Management seeks to mitigate other transaction risks by matching assets and liabilities in the same currency and where appropriate hedging material exposure.

Risk: Social, Safety and Environmental

Description: The Group’s success may depend upon its social, safety and environmental performance, as failures can lead to delays or suspension of its mining activities.

Mitigation/Comments: The Group takes its responsibilities in these areas seriously and monitors its performance across these areas on a regular basis.

Communication with Shareholders & Continuous Disclosure

Petra supports open dialogue between shareholders and the Board so that the Board understands shareholders’ needs and objectives and their views. As part of Petra’s proactive investor relations approach, management and the investor relations team commit time to hold regular formal and informal meetings in person with the Company’s shareholders in order to get direct feedback and input on strategy and performance.

The Board encourages full participation of shareholders at shareholder meetings to ensure a high level of accountability and identification with the Group’s strategy and goals.

The Company ensures that all shareholders and investors have equal access to the Company’s information, and has procedures to ensure that all price sensitive information will be disclosed to the London Stock Exchange, and subsequently its corporate website, in accordance with continuous disclosure requirements.

GRI

Organisational profile
2.10
Awards received
Governance, commitments and engagement
4.1
Governance structure including committees
4.2
Independence of the chair
4.3
Independence of board
4.4
Mechanisms for shareholders and employees to provide recommendations or direction to the board
4.5
Linkage between compensation and performance
4.6
Process to ensure conflicts of interest are avoided
4.8
Internally developed relevant statements of mission or principles
4.9
Procedure for risk identification and compliance
Commitments to external initiatives
4.11
Explanation of use, precautionary approach
Stakeholder engagement
4.16
Approaches to stakeholder engagement
4.17
Key topics and concerns of stakeholders
Public policy
SO5
Public policy positions and participation in public policy development and lobbying
SO7
Total number of legal actions for anti-competitive behaviour, anti-trust and monopoly practices and their outcomes